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                        <h1 class="title">Options Strategies</h1>
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<h4>Before you buy or sell options you need a strategy, and before you  choose an options strategy, you need to understand how you want options to work  in your portfolio.</h4>
<p>A particular strategy is successful only if it performs in a  way that helps you meet your investment goals. If you hope to increase the  income you receive from your stocks, for example, you'll choose a different  strategy from an investor who wants to lock in a purchase price for a stock  she'd like to own.</p>
<p>One of the benefits of options is the flexibility they offer as they  can complement portfolios in many different ways. So it's worth taking the time  to identify a goal that suits you and your financial plan. Once you've chosen a  goal, you'll have narrowed the range of strategies to use. As with any type of  investment, only some of the strategies will be appropriate for your objective.</p>
<p> Some options strategies, such as writing covered calls, are relatively  simple to understand and execute. There are more complicated strategies,  however, such as spreads and collars, that require two opening transactions.  These strategies are often used to further limit the risk associated with  options, but they may also limit potential return. When you limit risk, there is  usually a trade-off.</p>
<p>  Simple options strategies are usually the way to begin investing with  options. By mastering simple strategies, you'll prepare yourself for advanced  options trading. In general, the more complicated options strategies are  appropriate only for experienced investors.</p>
<p>  Once you've decided on an appropriate options strategy, it's important  to stay focused. That might seem obvious, but the fast pace of the options  market and the complicated nature of certain transactions make it difficult for  some inexperienced investors to stick to their plan. If it seems that the  market or underlying security isn't moving in the direction you predicted, it's  possible that you'll minimize your losses by exiting early. But it's also  possible that you'll miss out on a future beneficial change in direction.  That's why many experts recommend that you designate an exit strategy or  cut-off point ahead of time, and hold firm. For example, if you plan to sell a  covered call, you might decide that if the option moves 20% in-the-money before  expiration, the loss you'd face if the option were exercised and assigned to  you is unacceptable. But if it moves only 10% in-the-money, you'd be confident  that there remains enough chance of it moving out-of-the-money to make it worth  the potential loss.</p>
<p>&nbsp;</p>
<h3>  Long Call</h3>
<p>  Purchasing calls has remained the most popular strategy with investors  since listed options were first introduced. Before moving into more complex  bullish and bearish strategies, an investor should thoroughly understand the fundamentals  about buying and holding call options.</p>
<p>This strategy appeals to an investor who is  generally more interested in the dollar amount of his initial investment and  the leveraged financial reward that long calls can offer. The primary  motivation of this investor is to realize financial reward from an increase in  price of the underlying security. Experience and precision are key to selecting  the right option (expiration and/or strike price) for the most profitable  result. In general, the more out-of-the-money the call is the more bullish the  strategy, as bigger increases in the underlying stock price are required for  the option to reach the break-even point. </p>
<p>&nbsp;</p>
<h3>Long Put</h3>
<p>  A long put can be an ideal tool for an investor who wishes to  participate profitably from a downward price move in the underlying stock.  Before moving into more complex bearish strategies, an investor should  thoroughly understand the fundamentals about buying and holding put options.</p>
<p>Purchasing  puts without owning shares of the underlying stock is a purely directional  strategy used for bearish speculation. The primary motivation of this investor  is to realize financial reward from a decrease in price of the underlying  security. This investor is generally more interested in the dollar amount of  his initial investment and the leveraged financial reward that long puts can  offer than in the number of contracts purchased.</p>
<p>Experience  and precision are key in selecting the right option (expiration and/or strike  price) for the most profitable result. In general, the more out-of-the-money  the put purchased is the more bearish the strategy, as bigger decreases in the  underlying stock price is required for the option to reach the break-even  point.</p>
<p>&nbsp;</p>
<h3>  Married  Put</h3>
<p>  An investor purchasing a put while at the same time purchasing an equivalent  number of shares of the underlying stock is establishing a &quot;married  put&quot; position - a hedging strategy with a name from an old IRS ruling.</p>
<p>The  investor employing the married put strategy wants the benefits of stock  ownership (dividends, voting rights, etc.), but has concerns about unknown,  near-term, downside market risks. Purchasing puts with the purchase of shares  of the underlying stock is a directional and bullish strategy. The primary motivation  of this investor is to protect his shares of the underlying security from a  decrease in market price. He will generally purchase a number of put contracts  equivalent to the number of shares held.</p>
<p>While  the married put investor retains all benefits of stock ownership, he has  &quot;insured&quot; his shares against an unacceptable decrease in value during  the lifetime of the put, and has a limited, predefined, downside market risk.  The premium paid for the put option is equivalent to the premium paid for an  insurance policy. No matter how much the underlying stock decreases in value  during the option's lifetime, the investor has a guaranteed selling price for  the shares at the put's strike price. If there is a sudden, significant  decrease in the market price of the underlying stock, a put owner has the  luxury of time to react. Alternatively, a previously entered stop loss limit  order on the purchased shares might be triggered at a time and at a price  unacceptable to the investor. The put contract has conveyed to him a guaranteed  selling price, and control over when he chooses to sell his stock.</p>
<p>&nbsp;</p>
<h3>Alternatives  before expiration?</h3>
<p>  An investor employing the married put can sell his  stock at any time, and/or sell his long put at any time before it expires. If  the investor loses concern over a possible decline in market value of his  hedged underlying shares, the put option may be sold if it has market value  remaining. </p>
<p>If the put option expires with no value, no action  need be taken; the investor will retain his shares. If the option expires  in-the-money, the investor can elect to exercise his right to sell the  underlying shares at the put's strike price. Alternatively the investor may  sell the put option, if it has market value, before the market closes on the  option's last trading day. The premium received from the long option's sale  will offset any financial loss from a decline in underlying share value. </p>
<p>The investor employing the protective put strategy  owns shares of underlying stock from a previous purchase, and generally has  unrealized profits accrued from an increase in value of those shares. He might  have concerns about unknown, downside market risks in the near term and wants  some protection for the gains in share value. Purchasing puts while holding  shares of underlying stock is a directional strategy, but a bullish one. </p>
<p>Like the married put investor, the protective put  investor retains all benefits of continuing stock ownership (dividends, voting  rights, etc.) during the lifetime of the put contract, unless he sells his  stock. At the same time, the protective put serves to limit downside loss in  unrealized gains accrued since the underlying stock's purchase. No matter how  much the underlying stock decreases in value during the option's lifetime, the  put guarantees the investor the right to sell his shares at the put's strike  price until the option expires. If there is a sudden, significant decrease in  the market price of the underlying stock, a put owner has the luxury of time to  react. Alternatively, a previously entered stop loss limit order on the  purchased shares might be triggered at both a time and a price unacceptable to  the investor. The put contract has conveyed to him a guaranteed selling price  at the strike price, and control over when he chooses to sell his stock.</p>
<p>&nbsp;</p>
<h3>Covered  Call</h3>
<p>  The covered call is a strategy in which an investor writes a call  option contract while at the same time owning an equivalent number of shares of  the underlying stock. If this stock is purchased simultaneously with writing  the call contract, the strategy is commonly referred to as a  &quot;buy-write.&quot; If the shares are already held from a previous purchase,  it is commonly referred to an &quot;overwrite.&quot; In either case, the stock  is generally held in the same brokerage account from which the investor writes  the call, and fully collateralizes, or &quot;covers,&quot; the obligation  conveyed by writing a call option contract. This strategy is the most basic and  most widely used strategy combining the flexibility of listed options with  stock ownership.</p>
<p>Though the covered call can be utilized in any  market condition, it is most often employed when the investor, while bullish on  the underlying stock, feels that its market value will experience little range  over the lifetime of the call contract. The investor desires to either generate  additional income (over dividends) from shares of the underlying stock, and/or  provide a limited amount of protection against a decline in underlying stock  value.</p>
<p>While this strategy can offer limited protection  from a decline in price of the underlying stock and limited profit  participation with an increase in stock price, it generates income because the  investor keeps the premium received from writing the call. At the same time,  the investor can appreciate all benefits of underlying stock ownership, such as  dividends and voting rights, unless he is assigned an exercise notice on the  written call and is obligated to sell his shares. The covered call is widely  regarded as a conservative strategy because it decreases the risk of stock  ownership.</p>
<p>&nbsp;</p>
<h4>Cash  Secured Put</h4>
<p>  According to the terms of a put contract, a put writer is obligated to  purchase an equivalent number of underlying shares at the put's strike price if  assigned an exercise notice on the written contract. Many investors write puts  because they are willing to be assigned and acquire shares of the underlying  stock in exchange for the premium received from the put's sale. For this  discussion, a put writer's position will be considered as  &quot;cash-secured&quot; if he has on deposit with his brokerage firm a cash  amount (or equivalent) sufficient to cover such a purchase.</p>
<p>There are two key motivations for employing this  strategy: either as an attempt to purchase underlying shares below current  market price, or to collect and keep premium from the sale of puts which expire  out-of-the-money and with no value. An investor should write a cash secured put  only when he would be comfortable owning underlying shares, because assignment  is always possible at any time before the put expires. In addition, he should  be satisfied that the net cost for the shares will be at a satisfactory entry  point if he is assigned an exercise. The number of put contracts written should  correspond to the number of shares the investor is comfortable and financially  capable of purchasing. While assignment may not be the objective at times, it  should not be a financial burden. This strategy can become speculative when  more puts are written than the equivalent number of shares desired to own. </p>
<p>The put writer collects and keeps the premium from  the put's sale, no matter how much the stock increases or decreases in price.  If the writer is assigned, he is then obligated to purchase an equivalent  amount of underlying shares at the put's strike price. The premium received  from the put's sale will partially offset the purchase price for the stock, and  can result in a purchase of shares below the current market price. If the  underlying stock price declines significantly and the put writer is assigned,  the purchase price for the shares can be above current market price. In this  case, the put writer will have an unrealized loss due to the high stock  purchase price, but will have upside profit potential if retaining the  purchased shares.</p>
<p>&nbsp;</p>
<h3>Bull  Call Spread</h3>
<p> Establishing a bull call spread involves the purchase of a call option  on a particular underlying stock, while simultaneously writing a call option on  the same underlying stock with the same expiration month, at a higher strike  price. Both the buy and the sell sides of this spread are opening transactions,  and are always the same number of contracts. This spread is sometimes more  broadly categorized as a &quot;vertical spread&quot;: a family of spreads  involving options of the same stock, same expiration month, but different  strike prices. They can be created with either all calls or all puts, and is  bullish or bearish. The bull call spread, as any spread, can be executed as a  &ldquo;unit&quot; in one single transaction, not as separate buy and sell  transactions. For this bullish vertical spread, a bid and offer for the whole  package can be requested through your brokerage firm from an exchange where the  options are listed and traded.</p>
<p>An investor often employs the bull call spread in moderately bullish market  environments, and wants to capitalize on a modest advance in price of the  underlying stock. If the investor's opinion is very bullish on a stock it will  generally prove more profitable to make a simple call purchase. </p>
<p>An investor will also turn to this spread when there is discomfort with either  the cost of purchasing and holding the long call alone, or with the conviction  of his bullish market opinion.</p>                  </div>
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